Chlor-alkali producer Olin reports Q4 net loss on weak prices, slack demand

Houston — Olin, the world's largest chlor-alkali producer, reported a net loss of $77.2 million in the fourth quarter, with profits crushed by widespread weaker demand from alumina, pulp and paper, refrigerant, agricultural and urethane customers.

Prices of caustic soda, a key feedstock for alumina, and pulp and paper industries, fell 24%, while prices for ethylene dichloride, a precursor to construction staple polyvinyl chloride, fell 30%, the company said.

Low feedstock ethylene and electricity prices helped offset the losses, but CEO John Fischer said weak prices are expected to last into 2020.

"A portion of the fourth quarter and January declines in the price indices will be experienced in our system as we progress through the early months of 2020," he said Wednesday during the company's quarterly earnings call.

Caustic soda prices have been weak globally, with US export prices last assessed on Tuesday at $200/mt FOB USG -- a level not seen since 2010.

The company also saw epoxy face weaker demand from automotive, electrical laminate and industrial coatings customers.

"We do expect the weak underlying demand fundamentals in our chemical businesses to persist through at least the first quarter of 2020," Fischer said. "We are entering the year challenged by lower chemical pricing. January 2020 pricing for caustic soda, ethylene dichloride and other chlorine derivatives as well as epoxy resins are below 2019 full year averages."

Olin saw little change in demand across its chemical portfolio through January,. Fischer said Olin will continue to focus on "variables within our control" by working to reduce operational and administrative costs.

STRONGER INDUSTRIAL DEMAND SOUGHT

Jim Varilek, chief operating officer, said the company needs to see industrial production grow to see prices for caustic soda strengthen and rebalance demand for caustic soda and chlorine. Caustic soda is a byproduct of chlorine production, and the alkali in chlor-alkali.

"We'd love to see a pickup in the automotive market, also the -- some of the aluminum markets like aerospace, commercial aircrafts and so forth. And if we saw those pick up, that would obviously start to rebalance things between chlorine and caustic side," Varilek said.

Despite near-term pressure, Fischer reiterated Olin's view that long term market fundamentals are strong.

"Current industry economics do not support world-scale chlor alkali capital investments," he said. "And ultimately, over the long term, supply and demand balances will tighten, resulting in upward pricing momentum for Olin's caustic soda, chlorine and chlorine-derivative products such as bleach and hydrochloric acid.

Olin this year plans to shut down a 230,000 mt/year chlor-alkali plant at its Freeport, Texas, complex, along with an associated vinylidene unit. Shintech is expanding chlor-alkali production at its Plaquemine, Louisiana, complex -- along with additional downstream EDC, vinyl chloride monomer and PVC output -- so overall US chlor-alkali capacity will be slightly higher by the year-end despite Olin's chlor-alkali shutdown.

EDC prices have also fallen dramatically, weighed in 2019 by oversupply. Prices last year fell 44% to $205/mt FOB USG in August from a high of $370/mt FOB in March. Prices have since rebounded to $235/mt FOB, down 26% from the 2019 high.

Olin is the sole US EDC producer without downstream VCM and PVC production, so most of its EDC is export-bound. As caustic soda prices fell, integrated PVC producers increasingly kept EDC production internal for PVC rather than sell volumes at prices below $240/mt FOB.